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US Court Rejects Simultaneous Application of Antidumping and Countervailing Duties to Chinese Imports

1 October 2009

Mayer Brown Legal Update

In a significant ruling issued September 18, 2009, the US Court of International Trade (CIT) directed the US Department of Commerce (Commerce) to cease simultaneous application of antidumping (AD) and countervailing duties (CVD) against the same imports from China “[w]ithout some type of adjustment” that avoids the potential for “double counting.” According to Chief Judge Jane Restani, the same subsidies that Commerce seeks to offset when it applies CVD duties presumably lower the export price that leads to the finding of dumping that DOC seeks to offset when it applies AD duties. The case — GPX International Tire Corp. v. United States, 2009 WL 2996511 (CIT Sept. 18, 2009) — may lead to far-reaching changes in the way the United States combats injurious imports from China.

Background

US AD law enables the government to remedy the injury caused to domestic producers and workers from low-priced imports by offsetting the price advantage with AD duties that are applied in addition to any normal tariffs. CVD duties operate in the same manner, except they are meant to offset the benefit conferred on foreign producers and exporters by government subsidies.

For countries that are considered “market economies,” Commerce calculates a “normal” price or “value” using prices or costs in the exporter’s home market. If a foreign company’s export price to the United States is lower than its normal value (NV), AD duties are applied. However, in countries that are considered “non-market economies” or “NMEs,” such as China, Commerce applies a different methodology using prices and values from other market economies to establish the NV. Again, if the export price is below the NV established by Commerce, the difference between the two amounts is the AD “margin” (or duty).

For more than 20 years, Commerce refused to apply the US CVD law to NMEs because the centrally planned nature of these economies made it essentially impossible, in Commerce’s opinion, to disaggregate the actions of the government that would constitute a subsidy. The Court of Appeals for the Federal Circuit affirmed this view in Georgetown Steel Corp. v. United States, 801 F.2d 1308, 1314-18 (Fed. Cir. 1986) (“[e]ven if one were to label these incentives as a ‘subsidy,’ in the loosest sense of the term, the government of those [NMEs] would in effect be subsidizing themselves”). In 2007, Commerce changed its approach with respect to China and determined that while China remained an NME, sufficient economic reforms had taken place to enable Commerce to determine the specific financial contribution and benefit of a subsidy in China. As a result of this decision, Commerce began applying the US CVD law to imports from China. See Coated Free Sheet Paper From the People’s Republic of China: Amended Preliminary Affirmative Countervailing Duty Determination, 72 Fed. Reg. 60,645 (Oct. 25, 2007). Since then, nearly every new AD petition filed against imports from China has been accompanied by a CVD petition.

The Court’s Decision

In the GPX case, the CIT did not rule that Commerce could not apply the US CVD law to imports from China. Nor did the court rule that Commerce could not continue its NME methodology with respect to China in AD proceedings or even that the application of AD and CVD duties to the same product from China was facially invalid. Instead, the court held that the application of both AD and CVD duties to the same product from an NME country like China creates the “potential” for penalizing the same government distortion — the subsidy — twice. According to the court, this problem occurs because Commerce imposes a CVD to offset a government subsidy and then compares a subsidy-free NV (derived from unsubsidized values in market economies) with the original subsidized export price to calculate the dumping margin. Moreover, it was not sufficient, for Commerce to ignore this potential “by placing the burden to demonstrate double counting on GPX, because there is likely no way for any respondent to accurately prove what may very well be occurring.” According the court:

If there is a substantial potential for double counting, and it is too difficult for Commerce to determine whether, and to what degree double counting is occurring, Commerce should refrain from imposing CVDs on NME goods until it is prepared to address this problem through improved methodologies or new statutory tools.

What Next?

The CIT has remanded the GPX case back to Commerce, which has 90 days to respond. In our opinion, Commerce has several options:

It can determine that China is no longer a non-market economy and that China’s domestic market prices and costs can be used in calculating AD duties.

It can reverse its 2007 decision in Coated Free Sheet Paper and refuse to apply the US CVD law to China.

It can attempt to devise an adjustment or other methodology that addresses the potential for double counting identified by the court.

We think for a host of practical and political reasons, the first two options are not viable — at least not at this time. The more likely path forward for the agency is some variation of the third option. Commerce might, for example, announce that it is addressing the court’s concerns by shifting the burden of persuasion from Chinese respondents to US petitioners. Under this approach, Commerce would not apply CVD duties to imports from China unless the US industry that filed the petition presented prima facie evidence that domestic subsidies benefiting Chinese exporters did not cause export prices to fall during the period under review.

Whatever it does on remand, the government can be expected to appeal the court’s decision to the Federal Circuit once the case becomes final. In the meantime, Commerce is unlikely to make any significant changes to its methodology or practice. This will force the parties and lawyers involved in these other China AD/CVD cases to raise the same arguments raised by the plaintiffs in the GPX case.

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